Tag Archives: Spending

Wanting to learn more about consumer spending in retirement? This article discusses the following topics:

Empirical research on retiree
spending has noted a “retirement consumption puzzle,” where retiree
expenditures tend to decrease both upon and during retirement. This
decrease in spending is inconsistent with general economic theories on
consumption, which suggest individuals seek to maintain constant
consumption over their lifetimes.

Government data on consumption was analyzed in this study to understand how retiree consumption actually changes over time.

The
results of the analysis suggest that although the retiree consumption
basket is likely to increase at a rate that is faster than general
inflation, actual retiree spending tends to decline in retirement in
real terms. This decrease in real consumption averages approximately 1
percent per year during retirement.

A “retirement spending
smile” effect is noted. This finding has important implications when
estimating retirement withdrawal rates and determining optimal spending
strategies.